Self-insurance is a wildly successful way to fund employee benefits, yet there is still so much unknown about it. In this two-part blog, we’re going to take you through the whats, whys, and hows of self-funding. You may be surprised about what you didn’t know.
When discussing the whys, we should start with an overview of the current healthcare environment and how it has developed over the past 15 years. The most obvious trend we’ve seen is the rising cost of healthcare services, prescriptions, and rising carrier premiums. This has been compounded by a lack of transparency about the actual costs of healthcare and what’s really driving those costs. There has been low utilization of employee benefits, causing employers to lose thousands of dollars a year on unused benefits. And to top it off, there have been increasing regulations, both at the state and federal level, that have made employee benefits management more complicated and costly.
In the current environment where costs are rising, transparency is decreasing, and compliance requirements are growing, it’s easy to see why so many employers are searching for another option. That brings us to the “what” of self-funding.
What is Self-Funding?
Self-Funded employee benefit plans are custom-built for each employer based on the needs of their employee base. In a self-funded arrangement, employers pay for healthcare claims out-of-pocket rather than paying a high monthly premium. When an employer works with a third-party administrator (TPA), self-funded plan management and compliance is an easy process. The TPA does the heavy lifting for the employer, from plan design, to processing of claims, to customer service, to maintaining compliance with federal and state laws. The TPA also helps the employer effectively manage the cost of healthcare by providing transparency about the cost of claims, the key cost drivers, and solutions for reducing the costliest claims.
Self-funded benefit plans give employers the ability to cut employee benefit costs, manage risk associated with high cost claims, and to counteract the negative trends in the healthcare industry. To learn how, stay tuned for part 2 of this blog, where we’ll talk about the hows of self-funding.